Trading Accounts and Bill Payment

[Robin Proctor]

I use Gnucash to manage our (small) business accounts in the GBP
currency, and am trying to record purchases from the US and the EU.
These Bills are denominated in USD and GBP respectively.
I am testing the process of recording and paying a Bill from a USD
Vendor using Trading Accounts as follows:

FILE SETUP

1) I set up a new GnuCash file, currency GBP, using the Business
Accounts hierarchy and Trading Accounts, with my Assets:Checking
Account opening at £500. I rename this account to Current Account
because I am English.

2) Using the Business menu, I create a Vendor - 'US Books' - whose
currency is USD.

3) I create an A/Payable account 'Accounts Payable USD' under
Liabilities, whose currency is USD. This account sits alongside the
standard Accounts Payable one.

BILL CREATION

4) I create a Bill from this Vendor, 1 line item of 5 books @ $20 each
= $100, allocated to account Expenses:Books. On posting this Bill to
the Accounts Payable USD account, I am next presented with the Trading
(Transfer Funds) form which asks me for a USD to GBP conversion rate.
I enter 0.62 which I deem reasonable at the moment, and press OK.

5) I review my Accounts. My Expenses (Books) are £62, balanced by
Liabilities of £62 coming from Accounts Payable USD at $100. This
seems fine. I also see my Trading Currency account has a credit of £62
balanced by a debit of $100. This also seems fine to me.

BILL PAYMENT

6) I run the Business - Bills Due Reminder, which shows this Bill as
100 (USD presumably). I wish to record Payment of this Bill from my
Current Account (GBP). Let us assume I paid by card and my Bank have
deducted £63.50 (say) from my account. In my understanding of Trading
Accounts - which may be the problem here - I should make two
transfers. (1) £63.50 from my Current Account to Trading:Currency:GBP,
and (2) $100 from Trading:Currency:USD to Liabilities:Accounts Payable
USD. This will leave me a Trading balance (loss) of £1.50.

7) To record these transfers I use the Business Payment facilities for
them to be recorded as Payment of the Bill.

8) From the Due Bills Reminder form I select Process Payment. This
suggests I post the payment of 100 (USD?)to Accounts Payable USD, and
I choose my Current Account as the Transfer Account. All fine so far.
I next find myself at the Transfer Funds screen, but this now seems to
be treating the 100USD for conversion to GBP as 100GBP for conversion
to USD.

9) If I enter £63.50 in the Transfer - To Amount box and press Tab,
the generated comment on transfer rates confirms my impression that
the conversion is going in the wrong direction. And when I press OK to
complete the action, I end up with 100GBP deducted from my Current
Account, a Imbalance of 36.5 USD, and corresponding strange numbers in
my Trading Account. Also GnuCash is now converting GBP to USD at the
inverted rate. I can undo some of this by deleting the Payment-related
entries from the General Ledger.

10) If instead at the Due Bills Reminder I enter 63.50 as the payment,
then at the Transfer Funds screen set To Amount to 100US, I get
reasonable transfer rates displayed again. I press OK to find that
GnuCash has only taken 63.50USD off the Bill, and left me with an
Imbalance of 36.50USD. The Due Bills Reminder shows me owing 36.50USD
on this Bill, however if I now process the payment again, drawing this
time from the generated Imbalance-USD account, I amazingly arrive at
the desired Account balances I suggest in (6).

Even though I get something reasonable in the end, I would be
surprised to learn that I am working the system correctly. Am I
misunderstanding how to use Trading Accounts, or am I entering the
data incorrectly, or indeed is the end position incorrect?

Regards

Robin Proctor